GABY Inc. Reports Second Quarter 2020 Financial and Operational Results

- Variable Gross Margin of 23% at Q2 2020 is up approximately 90% from Q1 2020 as Company benefits from higher margin revenue

SANTA ROSA, CA / ACCESSWIRE / August 31, 2020 / GABY Inc. ("GABY" or the "Company") (CSE:GABY) (OTCQB:GABLF), a California-focused, Cannabis and CBD consumer goods and distribution company, is pleased to provide its second quarter 2020 results (ended June 30, 2020).

Q2 2020 Financial Highlights

• Revenue was $.7 million compared to $2.1 million during the same quarter in 2019
• Adjusted EBTIDA from Continuing Operationsⁱ was (1.6 million) ⁱ compared to ($3.5 million) ⁱ during the same quarter last year. The improvement of $1.9 million was primarily due to a decrease in SG&A expenses of $2.0 million.
• Variable Gross Margin improved to 23% compared to 11% during the same quarter in 2019 and negative 1.0% in Q1 2020

The improved Adjusted EBITDA from continuing operations[i] and significantly improved Variable Gross Margin in the quarter reflects a number of initiatives that GABY has implemented early in 2020 and continued into Q2 2020, as follows:

• Relocating all operating and finance roles to Santa Rosa, California, after the positions of the President and COO, and the CFO and all operating and supporting staff in Canada were terminated;
• Consolidation of its office and operations to Santa Rosa, California eliminating five out of six office and warehouse leases;
• Founder, Margot Micallef, adding to her role of CEO, the day to day responsibility of running the operations after terminating the employment of the President and Chief Operating Officer and other senior sales and operating roles;

• Shuttering its cultivation and manufacturing operations, removing the capital investment required to develop upstream operations;
• Broadening its procurement infrastructure to several third-party contractors having cultivation relationships with a wider base of farmers in lieu of an in-house procurement department with more limited cultivation relationships;
• Simplifying its operations, by creating greater efficiencies, rationalizing staff count and lowering costs;
• Developing more effective standard operational protocols to maximize efficient regulatory compliance and simplify operating processes;
• Shuttering unprofitable business operations, including its frozen food operations, Gabriella's Kitchen or GK which resulted in $0.7 Million of savings in both periods as reflected in the loss from discontinued operations;

• Terminating third party service and distribution relationships that were providing insufficient or low margins and replacing them with higher margin relationships.

The Company anticipates that through management's cost cutting initiatives GABY will save approximately $6MM on an annualized basis.

In addition, GABY replaced a number of senior positions with people experienced in start-ups who know how to do a lot with a little, having the discipline to push its revenue mix towards slower growing but more sustainable higher margin revenue.

"We entered Q2 with the uncertainty created by COVID-19. This reality impacted our revenue in three ways: It resulted in lower productivity and increased production costs, given the need to quarantine and social distance (we split our production crew into three teams instead of one producing fewer units per day than customary); It challenged our sales department and demand from our dispensaries (who were uncertain as to the impact of COVID-19 and how they would structure themselves to serve customers); and it made enforcement of the illicit market more challenging for regulatory bodies who were closed during the first few months following the start of the pandemic in California or who temporarily furloughed employees. This temporary lack of enforcement emboldened the illicit market and heightened their activity raising prices for available raw materials to the point that it was not economic for us to purchase raw materials for resale, explained Margot Micallef, Founder, President and Chief Executive Officer of GABY.

"It takes discipline to resist the temptation to build inventory when prices temporarily spike and courage to watch inventory levels become depleted as a result. But it is this discipline and this courage which builds companies in the long term. We entered 2020 with the promise that we would not sacrifice margin for revenue. And we have stuck to that promise" Ms. Micallef stated.

"While we would have liked Q2 revenue to have been higher, the cost cutting, operational restructuring, and risk mitigation strategies we implemented and the discipline we exhibited especially in Q2 2020 enabled us to significantly increase variable gross margin to 23%", Ms. Micallef added.

She concluded: "All these changes have positioned us to meet our goal to be profitable by year end. Our focus for the remainder of the year is to pursue sustainable growth both organically and by acquisition".

GABY's shares trade on the Canadian Securities Exchange ("CSE") under the symbol "GABY" and on the OTCQB under the symbol "GABLF". For more information, visit www.GABYinc.com.

For further inquiries, please contact:

Margot Micallef, Founder & CEO at [email protected] or Investor Relations at [email protected] or 800-674-2239.

(i) NOTE- NON-GAAP MEAUSRES

Adjusted EBITDA from Continuing Operations

Adjusted EBITDA from Continuing Operations in respect of the comparative periods of Q2-20 below does not have any standardized meaning as prescribed by IFRS, and, therefore, is considered a non-GAAP measure and may not be comparable to similar measures presented by other issuers. The non-GAAP measure of Adjusted EBITDA from continuing operations, combined with IFRS measures, such as revenue and net loss, is a useful measure to our investors as management relies on it to provide a measure of operating cash flows before servicing debt, income taxes, capital expenditures and other gains and losses.

Adjusted EBITDA from Continuing Operations for the periods ended below are calculated as follows:

Disclaimer and Forward-Looking Information

The CSE does not accept responsibility for the adequacy or accuracy of this release. Certain information set forth in this news release may contain forward-looking statements that involve substantial known and unknown risks and uncertainties, certain of which are beyond the control of the Company. Forward-looking statements are frequently characterized by words such as "plan", "continue", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words, or statements that certain events or conditions "may" or "will" occur. These statements are only predictions. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The Company assumes no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Sonoma Pacific Distribution, Inc., is a subsidiary of GABY. Sonoma Pacific holds a type 11 cannabis license in the State of California. Unlike in Canada which has Federal legislation uniformly governing the cultivation, distribution, sale and possession of medical cannabis under the Cannabis Act (Federal), readers are cautioned that in the United States ("U.S."), cannabis is largely regulated at the State level. Cannabis is legal in the State of California. However, cannabis remains illegal under U.S. federal laws. Notwithstanding the permissive regulatory environment of cannabis at the State level, cannabis continues to be categorized as a controlled substance under the Controlled Substances Act in the U.S. and as such, cannabis-related practices or activities, including without limitation, the manufacture, importation, possession, use or distribution of cannabis are illegal under U.S. federal law. To the knowledge of the Company, the business operated by Sonoma Pacific is conducted in a manner consistent with the State law of California, as applicable, and it is in compliance with regulatory and licensing requirements applicable in the State of California. However, readers should be aware that strict compliance with State laws with respect to cannabis will neither absolve GABY, or its subsidiary of liability under U.S. federal law, nor will it provide a defense to any federal proceeding in the U.S. which could be brought either GABY or its subsidiary. Any such proceedings brought against GABY or its subsidiary may materially adversely affect the Company's operations and financial performance generally and in the U.S. market specifically.

Neither the CSE nor its Regulation Services Provider accepts responsibility for the adequacy or accuracy of this release.

SOURCE: GABY Inc.